China’s diatribe on U.S. debt could backfire

By Wei Gu
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

China’s diatribe against Washington’s economic policy after the weekend’s U.S. credit-rating downgrade could backfire. Pouncing on overseas woes may be an attempt to shift domestic attention from China’s recent train tragedy. But the cost for Beijing could be more U.S. pressure on matters like currency and Sino-American trade.

The news service commonly seen as the Communist Party’s mouthpiece made two demands after Standard and Poor’s stripped the United States of its triple-A status. First, it called for international supervision of U.S. debt and for China to be given certain guarantees on its exposure. This is largely familiar stuff. But the second request — for America to slash its military expenditure to help balance its massive budget gap — marked a new departure. It reflects concern after recent U.S. military drills in disputed waters of the South China Sea, and worry about more U.S. arms sales to Taiwan, a topic expected to emerge during Vice President Joe Biden’s upcoming visit to China.

Of course, it suits China to talk down the United States. With the yuan only allowed to appreciate slowly against the dollar, there are trade advantages of a weak dollar for China, though slower demand from the United States will eventually hurt Chinese exports. China’s tightly managed currency regime is one reason why U.S.-China bilateral trade imbalance rose by 20 percent to $273 billion in 2010. With worries about global recovery spiking, Beijing will be more inclined to keep its currency in check to help exports.

But Beijing’s warnings lack teeth. China is the biggest foreign owner of U.S. Treasuries and it has no choice but to keep buying. There is no other market deep enough to park a majority of its $3.2 trillion of reserves.

Chinese authorities will hope in vain that Washington will listen to its concerns on military spending. But dictation of U.S. military policy by Chinese media will give fodder to those politicians on Capitol Hill who would like to portray China as a threat to America’s security. Lawmakers could respond with proposed trade sanctions and louder criticism for the inflexible yuan. With so much at stake for China, Beijing needs to choose its words carefully.

China has no other choice than to continue buying Treasuries. They need to send the surpluses out of their system in order to keep the Yuan cheap.

It is very unlikely for China to dump their Treasuries, it will only create Dollar inflation and more pressure on the Yuan. Looks that the US is on its way to reduce deficits and balance budgets and that equalls less Tresuries for China to buy so it will be more difficult to keep the Yuan cheap.

I don’t even know why I bother to read these articles anymore. The U.S. Congress has totally lost my support. They are now pointing fingers instead of working together. After catastrophes, it is normal for people to pull together. But no, Not Our Congress! Do they not know what they have done?!

Here China wants ‘international oversight’ of financial contracts (borrowing money) that our sovereign country enters into. That is a hostile position. If they didn’t feel safe loaning money, then they shouldn’t have loaned money. They take risks, just like everyone else. And a communist regime proposing international control of the finances of a democratic republic is absurd. They just want to squeeze every dime out of us and are upset that they cannot keep the yaun artificially inflated. Yes, we left our doors unlocked, but it doesn’t mean that they can walk in and start telling us what to do. If they do that, they may as well kiss the loans goodbye.

Now, I have more important things to do, than watch these college educated idiots in congress strut around blaming each other for their own ineptitudes. That IS the new generation taking over folks. What was that about college degrees? It makes for a better workforce? Not. It just gives monkeys a leg up.

How is that a reflection of concern of the U.S.’ military expenditure? You make it sound like the U.S. would take a loss with their sales of weapons. Any educated American citizen could tell you that the government has been way in over their heads in the past decade on military spending with tax-payers’ money while ignoring the increasing number of homeless and hungry people back at home. The only way for these two country to thrive is by working together covering each others flaws and losses. So sick of these so called “dissidents” like yourself taking whatever jabs you can find to the country where you are “born and raised”.

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